Allegations of arson and allegations of defamation

A yacht was involved in an explosion at a marina. Following the incident an insurance claim was made by the owners of the yacht. The insurers appointed an expert to investigate the cause of the loss.

The expert concluded that the “explosion and fire was the result of a deliberate act”. The report insinuated that it was the deliberate act of the owner. The insurers rejected the claim for a number of issues, including the experts report and the fact that the owner was working on the ship without the necessary authority. That was a breach of the policy terms.

The owner challenged the insurer’s decision to reject the claim in the local courts. The court found in favour of the insurers because the owner was working on the vessel without requisite authority. Therefore, irrespective of the allegation of arson, the policy did not have to respond to the loss.

The owner then claimed €650,000 damages for defamation in respect of the allegations of arson raised in the expert’s report. Proceedings were issued against the insurers and the expert. Local legal advice was that any claim for defamation and slander had little chance of success and even if it did, the likely award would be nearer €200,000 than €650,000.

The insurers wanted the expert to pay the costs of the defence of the defamation claim – based on the fact that it was the allegation in their report that had caused the issue.

However, ITIC persuaded the insurers that they should support their expert – especially when they were, in part, relying on the report to reject the claim. If it turned out that their report was negligent the insurers could make a claim against the expert which would fall under their ITIC cover. Until then the insurers should defend the expert. The insurers accepted that position.